This post was written prior to our January 2017 merger, under our previous firm name, Aikins, MacAulay & Thorvaldson LLP.
What is it?
Force majeure is defined by Webster’s Dictionary as “an event or effect that cannot be reasonably anticipated or controlled.” This is similar to how this term is interpreted at law.
Pursuant to the leading decision of the Supreme Court of Canada: “… [A force majeure clause] generally operates to discharge a contracting party when a supervening, sometimes supernatural, event, beyond control of either party, makes performance impossible. The common thread is that of the unexpected, something beyond reasonable human foresight and skill…”
In a construction context, these types of occurrences are typically of a type where “you know it when you see it.”
When can a Force Majeure Clause be relied upon and by whom?
Successful reliance upon a purported occurrence of a force majeure event is context specific, and each set of facts must be assessed on a case-by-case basis.
There a number of key factors to consider:
- the wording of the force majeure clause,
- the specific event,
- the allocation of risk for such an occurrence between the owner and builder in the contract, and
- the work to be performed.
The first two factors are likely the most important, but each will need to be considered in making a determination as to whether such event is one which gives rise to a force majeure event or any form of relief under the contract.
In a Canadian Construction Documents Committee (CCDC) 2 Stipulated Price Contract when dealing with construction delays, the time for performing the work will be extended where (among other things as set forth in the contract) delay is the result of “any cause beyond the Contractor’s control.”
What if the work to be performed under this contract is the construction of a two-storey commercial building in Altona, Manitoba and a tornado damages the work and delays the project? This is likely a force majeure event absent any owner specifications or supplemental conditions in the contact which expressly transfer this risk to the contractor. For example, what if the building is to be tornado proof? If so, then the occurrence of a tornado may not automatically give rise to contractor relief for this otherwise force majeure event.
Each contract should clearly stipulate which party or parties can rely upon a force majeure event and should set out the nature of relief available. It would be atypical for a construction contract to omit such important details.
What to Watch Out For:
Given that the occurrence of a force majeure event is often in doubt, steps can be taken to mitigate against such uncertainty. Clear definition of the criteria for such determinations and/or specific events that will or will not qualify as force majeure events should be considered. The allocation of risk between the owner and contractor should be clearly set out in the agreement. Normal business risks allocated between the parties will not address a force majeure event. Clearly delineating between business risks and risks which are truly outside the control or management of either party is highly recommended.
Standardized CCDC type contracts provide a balanced approach, but they must sometimes be modified to deal with the subject matter of the contract. For example, temperatures below minus thirty Celsius in Manitoba are to be expected, but not so in other Canadian provinces or in other countries.
As stated above, what constitutes “circumstances beyond the control of the parties” can be, and frequently is, very subjective. It can therefore be helpful to specifically exclude items which the parties are supposed to manage and which should not be deemed force majeure events. These exclusions could consist of inclement weather (above or below a certain expected range), labour shortages, fluctuating costs of or accessibility to materials and other risks which are relevant to the work to be performed.
At the end of the day, appropriately considering and allocating the risks between the parties before finalizing the contract and commencement of any work will help advance a successful project. Something we can all agree upon.
This article was originally published in Upword Magazine, Issue 2, Edition 2015.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that this article is not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.
Rob Fleischaker is a lawyer in the business law department at Aikins Law and has an interest in construction law matters. You can reach him at firstname.lastname@example.org.